A new report says dairy farmers could be facing a drop in milk prices after a bumper start to the season.
Rabobank's latest Dairy Quarterly report shows growth across the world's 'Big 7' dairy exporters slowed during quarter three.
The slowdown in combined milk production growth seen in quarter two 2018 from the 'Big 7' (the EU, the US, New Zealand, Australia, Uruguay, Argentina and Brazil), at just one per cent year-on-year (YOY), has trickled through to quarter three, driven by a number of factors including drought conditions in parts of northern and western Europe.
The report says that's at odds with the start to the New Zealand dairy season where near-perfect weather and more cows milked over the winter period resulted in production growth of five per cent YOY over the seasonal trough period from June to August
Report author, Rabobank dairy analyst Emma Higgins, says the jump in New Zealand milk supply has created a lack of buyer urgency for Oceania-origin products over the past quarter and this continued in the most recent GDT Event.
"This lack of buyer urgency has resulted in weaker pricing which fed into the bank's downward revision to its full-year forecast from NZD 6.80/kgMS to NZD 6.65/kgMS for the 2018/19 season," she said.
Ms Higgins said while Rabobank's forecast milk price had been pared back, there had not been a larger downward revision due to Rabobank's expectation that global milk supply growth will tighten in the coming year.
"Ultimately, milk deliveries from major exporting regions will lift only modestly during the coming 12 months compared to the year prior, driven by tight margins on-farm and lingering effects of adverse weather," she said.
"We anticipate available dairy for export will significantly tighten across the coming months which will provide some upside to dairy commodity pricing, particularly moving into 2019 and this has been factored into our revised forecast."
Ms Higgins says an anticipated lift in Chinese demand across the remainder of 2018 is another factor which would underpin the New Zealand milk price this season.
"While local milk production is improving in China, dairy demand remains robust. We anticipate a lift in Chinese imports across the tail end of this year which will help soak up some of the excess NZ milk supply," she said.
Newshub.